Ann: Appen 2020 Full Year results, page-191

As I said yesterday and this morning, the analysts and fund managers have the competitive disadvantage of being forced to focus on 12mo price targets and so they of course are downgrading their short term numbers.

us retail investors have no such pressure. We should all be focussing on a minimum 3-5 year horizon when looking at any stock, and with high p/e growth stocks it should really be a minimum 5 year horizon.

so when a great company (with a long growth runway ahead in a thematic with massive structural tailwinds and is the market leader globally in that space) hits a short term speed bump due to external factors (covid, engineer shortages within the faangs and a high aud) that pose minimal threat to its long term growth, it creates a rare window of opportunity for retail investors with the following 4 attributes:
(1) cash reserves on hand (liquidity)
(2) the ability to look 5 years ahead
(3) the discipline to hold through the turbulence over the next 12-mo without panicking
(4) the risk tolerance and conviction to hold a portfolio that is contrarian to the market

this creates a rare opportunity to create significant alpha, ie to outperform the market or grow wealth through compounding returns, by buying a company that has been oversold due to a short term external issue which does not change the long term outlook.

I put down a buy order at $18.10 this morning that got hit, so I’m happy with that. I’ll keep accumulating if it keeps trending down over the coming weeks.

im actually averaging up by buying because my original large parcels were all sub $3, but I believe in buying more over time as a company grows if my thesis holds, and I’m happy it does after the report today.

in this situations, I remind myself of warren buffet’s line that goes a little something like:
”I like to wait and buy both socks and good companies when they are being discounted” (forgive me if I slightly misquoted the original).

the analysts and fund managers are doing a favour by granting a rare second chance for anyone who failed to get on board appen early, and for those that are already Invested and continue to hold the same outlook long term, they are being given the opportunity to add more at a discount to the long term growth.

i havnt calculated a PEG ratio recently, but I think if we go back to TEPs original DCF IV calc’s off his forward projections to 2030, I believe they are still fair.
to look at it another way, if we project consistent 23% growth (which is the midpoint of the APX guidance for 2021 provided today) in revenue without any improvement in ebitda/ profit margins on a 5 year outlook compounded, then based on today’s underlying 52c eps I get 1.47 eps, ie a p/e of 12 for apx at 5yrs.

now I expect Apx to grow revenue, ebitda and eps faster than 23%, and even more so after seeing their progress establishing new areas of business into China, automotive, healthcare, government and by diversifying their customer base plus the covid structural shift towards businesses moving more online and thus more spend onto online advertising.

basically, I think it’s a bargain. I don’t know any more than the rest of you what the share price will do tomorrow or over the next month, but if you want guaranteed positive returns withi a 12-month timeline, your only option is a term deposit, which should get you around 0.7% (maybe).

if you have a 5 year horizon, Apx is a buy, and I would doubt there is a single analyst or fund manager on this earth who wpuld disagree at $17. If we can buy some at lower prices in the coming weeks, even better.

good luck all